- A coalition formed by Kalshi, Crypto.com, and Polymarket is suing the state of Kentucky to block a 14.25% tax on prediction markets set to take effect in January of 2027.
- Kentucky is the first state to try to impose a tax on prediction markets.
- The state also passed legislation to prevent sports betting operators from partnering with prediction markets, which is set to take effect July 15th.
FRANKFORT, Ky. – Prediction market platforms are banding together against a new tax law in Kentucky which would impose an unprecedented 14.25% tax on prediction market transaction fees.
Three of the biggest prediction market platforms – Kalshi, Crypto.com, and Polymarket – have formed a coalition to sue the state in an attempt to block the new tax law, which is set to take effect in January of 2027. Along with the new tax law, Kentucky passed other restrictions which would prevent legal sports betting sites in the state from partnering with prediction markets which would kick in on July 15th.
The coalition argues that the state overtly targeted federally regulated prediction markets because they believe that they are a threat to Kentucky sports betting sites rather than imposing a regular tax on business activity with the three bills in question – HB 757, HB 869, and HB 904 – disguising regulation as a form of tax.
A key point made by the coalition is that the 14.25% tax on prediction markets is higher than the 9.75% tax on horse racing wagers by a fairly significant amount. If the tax rates were closer, it would be easier to pass as an expansion of current tax laws.
Kentucky is the first state to attempt to impose a tax on prediction markets, while Illinois followed in their tracks shortly after, passing their own prediction market tax.
The coalition is seeking an injunction to prevent the state from enforcing such laws, invoking the Commerce Clause which is meant to prevent states from interfering with interstate commerce. Kentucky’s tax will now be evaluated by the state’s court and could have a big impact on how prediction markets will be legislated and taxed across the country.
